Guilty Plea Links Enron To Kickbacks

August 22, 2002|By Kurt Eichenwald, New York Times

HOUSTON -- A former Enron finance executive told a federal judge Wednesday that he paid large kickbacks to the company's former chief financial officer, Andrew Fastow, out of money he received for managing a partnership that was used to help the company hide debt and increase profits.

The admission by the executive, Michael Kopper, came as he pleaded guilty to charges of conspiracy to commit wire fraud and money laundering, crimes that arose from his dealings with partnerships that ultimately led to the financial collapse of the Enron Corp. Kopper also settled a federal civil case brought by the Securities and Exchange Commission, and agreed to turn over to the government $12 million that was obtained through criminal activity.

Kopper's plea bargain, which requires his cooperation with the investigation into Enron's collapse, was considered by government officials to be a big step forward in the inquiry and established that at least some Enron insiders used its partnerships to defraud the company. People involved in the case said that Kopper had provided details of wrongdoing to prosecutors that exceeded his admissions in court on Wednesday, including important leads related to senior executives other than Fastow.

The plea bargain provided a strong signal that prosecutors in the Enron investigation -- who have been criticized by some members of Congress for moving too slowly -- have instead been methodically building a case against former company officials by using a building-block strategy of turning lower-level executives against their superiors.

"This is a substantial breakthrough in our investigation," said Leslie Caldwell, the head of the Justice Department's Enron task force, adding that Kopper's knowledge "will become our knowledge."

The government acted rapidly on the evidence it obtained from Kopper and other witnesses, and filed a request Wednesday to a federal judge seeking the forfeiture of about $23 million in assets held by Fastow and some of his associates, people involved in the case said.

Gordon Andrew, a spokesman for Fastow, would not comment, saying that his client would respond to the allegations against him "at the appropriate time and in the appropriate forum."

Some of the remaining employees at Enron reacted with outrage on hearing about the kickbacks, executives said on Wednesday, with many finally coming to believe that the company to which they had devoted their lives had been destroyed out of the greed of a few insiders.

The statements by Kopper and the information contained in the court documents upended the argument that the off-the-books partnerships set up by Enron were simply a valid business strategy that had gone horribly awry.

Rather, with evidence that Kopper provided kickbacks to the executive who selected him to run certain partnerships, legal experts said, the entire strategy has taken on the air of a financial fraud that allowed a group of Enron insiders to reap millions of dollars to which they were not entitled.

In effect, as described by the government, the partnership strategy at Enron was a series of lies within lies. Executives used it to hide the true state of the company's finances and holdings from Wall Street and regulators, and then used it again to secretly funnel vast amounts of money to themselves without the knowledge of shareholders. Based on Kopper's admissions, the managers of the partnerships -- which had to meet certain requirements of independence to be used as a valid business strategy -- were so closely linked in the lucrative scheme that the entities they ran were tightly intertwined with one another and with the company they were supposed to benefit.

In Wednesday's hearing, Kopper said little beyond reciting certain facts about his crimes and gave only a glimpse of the magnitude of the turmoil that has surrounded him during the past year when he mentioned having recently sought psychological help to deal with stress-related anxiety.